How and when is dual trading irrelevant

Bernhardt, D. and Taub, B. (2010) How and when is dual trading irrelevant. Journal of Financial Markets, 13(2), pp. 295-320. (doi:10.1016/j.finmar.2010.01.001)

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Abstract

Within a general model of speculative trade, we derive the aggregate consequences of dual traders who process retail liquidity trades and trade on their own account. We prove that dual trading reduces total expected speculator profits unless speculators process all liquidity trade and trade with the same intensity on liquidity trade. In contrast, dual trading does not affect the information content of prices. We show how results generalize when we endogenize (a) speculator information via costly information acquisition about fundamentals or costly processing of liquidity trade, and (b) liquidity trader motives and welfare via endowment shocks.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Taub, Professor Bart
Authors: Bernhardt, D., and Taub, B.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Financial Markets
Publisher:Elsevier
ISSN:1386-4181

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